Exceptional Dividend-Generating Share With a 20% Drop for Long-Term Ownership
In the realm of dividend-focused investments, two names that stand out are EPR Properties (EPR) and Annaly Capital Management (NLY). Both companies offer attractive yields, but their business models and associated risks set them apart.
EPR Properties, a REIT specialising in experiential properties, aims to bring people together in large groups. The company's portfolio includes venues such as movie theatres, family entertainment centres, and ski resorts. However, the structure of EPR's portfolio poses a unique risk, as the success of these properties heavily depends on the ease of large gatherings, a factor that was significantly impacted by the coronavirus pandemic.
During the pandemic, EPR cut its dividend to ensure financial stability and support its tenants. However, the company's ongoing turnaround effort is showing promising signs, with tenants demonstrating improved financial health. As of Q1 2025, rent coverage stands at 2x, up from 1.9x in 2019. This improvement has enabled EPR to reinstate its dividend, which now stands at a yield of 6.2%.
On the other hand, Annaly Capital is a mortgage REIT that primarily buys mortgage-backed securities (MBS), pools of mortgages bundled into bond-like instruments. The company generates income from the interest on these securities while funding its operations through borrowing. This business model results in a high dividend yield, currently over 14%, but also introduces volatility due to factors such as interest rate changes, housing market dynamics, and mortgage repayment trends.
The use of leverage in Annaly's business model amplifies returns but also increases risk. If interest rates rise or the housing market deteriorates, the company could face significant challenges. As a result, Annaly's dividend and stock price are historically volatile, with frequent dividend cuts in the past.
In conclusion, while both EPR and Annaly offer attractive dividend yields, they come with their own set of risks. EPR's risk is related to the structure of its portfolio, which management is working to change for the better. Annaly, on the other hand, offers a high but risky and volatile dividend yield due to its focus on leveraged mortgage securities.
For investors seeking income, it's crucial to understand that the large dividend yields from both companies can fluctuate significantly, making them potentially riskier choices compared to more stable dividend stocks. However, for total return investors who reinvest dividends, these stocks could hold more long-term appeal. As always, it's advisable to conduct thorough research and consider individual investment goals before making decisions.
- To further diversify a money-focused investment portfolio, consideration could be given to financially backing EPR Properties or Annaly Capital Management, given their attractive yields and focuses on real-estate sectors.
- For those specifically interested in experiential properties, EPR Properties could be an appealing investment, despite its unique risks related to the gathering size restriction and the pandemic's impact.
- On the other hand, Annaly Capital Management, primarily dealing with mortgage-backed securities, offers a high dividend yield but is a riskier choice due to its high volatility associated with factors such as interest rate changes, housing market dynamics, and mortgage repayment trends.
